Dollar’s Fed-fuelled gains dent gold, oil; European stocks rise

BLOOMBERG

The dollar is on its longest winning streak in a month as speculation builds that the Federal Reserve is moving closer to raising interest rates — and that’s weighing on oil, gold and emerging markets.
The U.S. currency strengthened for a fourth day after Chicago Fed President Charles Evans joined officials who’ve said this week they expect to raise rates more aggressively than the market has priced. The greenback’s appreciation dragged lower the Bloomberg Commodity Index, which nearly erased its gains of the past two days, while emerging-market stocks halted a five-day rally. European bonds fell and stocks rose, recovering after explosions that killed at least 31 people in the Belgian capital.
U.S. monetary policy is in the spotlight after the Fed a week ago halved its projection for rate increases this year to two, a shift that drove global stocks higher and weighed on the dollar. Traders put the chances of at least one 25-basis-point move by December at 76 percent, climbing from 54 percent at the end of February. “People have been underestimating the Fed,” said Sonja Marten, head of currency strategy at DZ Bank AG in Frankfurt, who sees the dollar strengthening to as much as $1.05 per euro this year. “The data has actually been consistently better than the market has been anticipating and that’s at odds with the assessment that the Fed might not do much more, if anything.”

Currencies
The Bloomberg Dollar Spot Index, a gauge of the greenback’s strength, rose 0.2 percent to a one-week high as of 7:56 a.m. New York time. It strengthened versus almost all of its 16 major peers, with the 0.6 percent gain versus South Korean won its largest advance.
The Chicago Fed’s Evans said Tuesday that projections for two rate hikes this year were “a pretty good setting” for him. San Francisco Fed President John Williams and Atlanta Fed President Dennis Lockhart said in the past week that policy makers may raise rates as soon as their April 26-27 meeting.
“Evans’s comments are taken hawkishly by the U.S. dollar,” said Imre Speizer, a markets strategist at Westpac Banking Corp. in Auckland. “If we continue to hear comments along those lines, then the market will see one reason to perhaps adjust its pricing for a hike from the end of this year, to something earlier.”
The pound weakened 0.2 percent to $1.4176, having slid 1.1 percent on Tuesday amid speculation the Brussels terror attacks will boost the case of campaigners who want to see Britain out of the European Union. Pro-“Brexit” politicians argued that migration leaves the nation vulnerable to attack, while figures in the opposing camp, including Prime Minister David Cameron, have said that being part of the economic and political union aids security.
A measure of price swings in the pound versus the dollar in three months, covering exactly the period leading up to the June 23 referendum, jumped to as high as 14.65 percent, the most since June 2010.
The euro weakened 0.2 percent to $1.1192.

Commodities
Brent crude dropped before data that’s forecast to show U.S. inventories, already at the highest level in more than eight decades, are still climbing, and as OPEC-member Libya said it wouldn’t attend talks next month aimed at freezing oil output. Brent fell 0.4 percent to $41.62 a barrel and West Texas Intermediate dropped 0.7 percent to $41.18.
U.S. crude inventories probably increased by 2.53 million barrels last week, according to a Bloomberg survey before an Energy Information Administration report on Wednesday. This compares to industry data that showed an 8.8 million barrel gain. Gasoline futures rose 0.4 percent to $1.5025 a gallon after American Petroleum Institute data showed a 4.3 million-barrel decline in U.S. inventories of the fuel last week.
Gold dropped to the lowest price in a week after the dollar rallied. Bullion for immediate delivery was 1.3 percent lower at $1,231.83 an ounce, according to Bloomberg generic pricing. On Tuesday, the metal had jumped as much as 1.3 percent on haven demand after bombings in Brussels. Silver slipped 1.7 percent.
Sugar traded near the highest closing price in more than a year. Dry weather in areas where the crop is grown, such as Thailand, has led market forecasters to reduce their production estimates, sending futures soaring about 30 percent in the past month.

Stocks
While the bombings at the Brussels airport and a subway station initially hit European equities and fueled demand for haven assets on Tuesday, the impact on financial markets proved temporary. Terrorist incidents including the one in Paris in November as well as the London bombings in 2005 spurred equity selloffs that were erased in the following days and weeks.
The Stoxx Europe 600 Index rose 0.4 percent. The volume of shares changing hands was 33 percent lower than the 30-day average. The VStoxx Index, a measure of volatility on the Euro Stoxx 50 Index, fell 3.7 percent.
Auto-related stocks climbed for a second day, posting one of the best performance of the 19 industry groups on the Stoxx 600, as the weaker euro benefits export-oriented companies. Credit Suisse Group AG added 2 percent after saying it will eliminate an additional 2,000 jobs this year and deepen cuts at the investment bank.
Germany’s DAX Index rose 1.1 percent as Chancellor Angela Merkel’s Cabinet backed increases in German spending on defense and infrastructure in a budget plan that seeks to address global risks and the refugee crisis that’s her biggest domestic challenge.
Standard & Poor’s 500 Index futures were little changed after declining travel-related stocks kept the equity gauge little changed on Tuesday. Investors may look to data Wednesday for further indications of the health of the world’s biggest economy and the possible trajectory of interest rates. Sales of new homes rebounded 3.2 percent in February, according to economist forecasts.

Bonds
The yield on U.S. Treasuries due in a decade was little changed at 1.93 percent, after climbing to the highest in a week. Germany’s government bonds declined as the nation sold 810 million euros of 30-year securities in an auction that failed to draw enough bids to meet its target. The benchmark German 10-year bund yield rose one basis point to 0.22 percent, after falling two basis points on Tuesday.
The cost of insuring corporate debt held near the lowest this year. The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies was little changed at 72 basis points.

Emerging Markets
The MSCI Emerging Markets Index fell 0.6 percent, after rising 5 percent over the previous five days. The gauge has gained more than 4 percent this year and is trading at 11.8 times estimated earnings.
Among the world’s 63 major stock indexes, 28 with a combined value of $28.5 trillion are in bull markets. Another 10 with $4.3 trillion are poised to join them. The MSCI All-Country World Index has jumped 12 percent since its Feb. 11 low.
Shares in South Africa led declines on Wednesday, losing 1.2 percent as commodity producers retreated.
Chinese stocks rose in late trading amid a revival in margin lending. The Shanghai Composite Index added 0.4 percent to close above the 3,000 level for the second time this week, with gains coming in the last 30 minutes of trading as technology companies rallied. The small-cap ChiNext index extended gains to 20 percent from a February low, the threshold for a bull market.